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Type 1 and Type 2 coordination is a definition that applies to motor starters, set out in the IEC standard 60947-4-1.
The coordination level relates to the level of resilience and protection in the event of a high current short-circuit fault.
The differences between the two types can be summarised as follows.

Type 1

A motor starter incorporating type 1 protection will protect persons and surrounding equipment from harm in the event of a short circuit fault, but may not be suitable for further service. For example, the contactor may have welded contacts, or the overload may be destroyed. Replacement parts or repairs will generally be required to get the motor starter back into service.

Type 2

A motor starter incorporating type 2 coordination will again protect personnel and equipment from harm, but will also be suitable for further service without extensive repairs or replacements (though the standard does permit light welding of the contacts that can be separated easily with a screwdriver or similar). This allows the motor starter to continue use without the need for extensive maintenance or downtime.

Which type is best for my application?

In many situations the possibility of a high current short circuit fault is low. In this case type 1 coordination will be sufficient.
In critical applications where up-time is critical or there is a higher possibility of a high current short circuit fault, type 2 coordination may be recommended.

What’s involved in Type 2 Coordination?

For DOL starters, a circuit breaker, contactor and/or thermal overload combination needs to be selected that is certified by the manufacturer to type 2. The extra cost in this instance is not significant. However, for a soft starter, semiconductor fuses are often required which can add extra cost and utilise extra cabinet space.